S borrowed some amount from R and promised to pay him 8% interest. Then S invested the borrowed amount in a scheme, upon which he earned a profit of 5% after paying R, the principal amount with interest. How much percentage R would have gained, if he had invested in the scheme directly?
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2 i.e. 13%.
Let the principal amount be P
S borrows P from R at 8% interest
The amount S has to repay R after 1 year = P + (P × 0.08)
⇒ P(1 + 0.08) = 1.08P
S invests P in a scheme and earns a 5% profit after paying R back this means S's net profit from the investment (after covering the cost of borrowing from R) is 5%
If R had invested the principal P directly in the scheme, he would have earned the full return without the cost of borrowing.
Therefore, his return would be the entire 8% (which he charged S) plus the additional 5% profit that S earned from the scheme is
⇒ 8% + 5% = 13%
So, if R had invested directly in the scheme, he would have gained 13%